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I left off in the last article explaining to you what forex means the exchange of foreign currencies across many markets. I explained that foreign currencies have what is called a free exchange rate, meaning their exchange value is not fixed and can fluctuate from market to market. In this article I am going to continue to explain some of the finer points of forex trading so you can be convinced that this is a viable investment you definitely want to jump on.

Just how big is the market?

You may not want to join the forex market because you believe it is not big enough to survive a downturn. Well you need to understand that the forex trading market is the biggest financial market in the world. There is over 1.9 trillion dollars in US currency traded everyday over this market. Do you have any idea how much money that is? Whatever you invested would not even make a dent, even if it were several millions of dollars.

I also explained to you the different kinds of currencies that are traded in the market. To help you get an understanding of how this business works I’ll use a baseball example. In Baseball you have your major leagues and you have you minor leagues right? Well in the forex trading market they have a similar system, though it is not written in stone. Certain currencies are referred to as the major currencies, while others currencies are referred to as the minor currencies. This is because the major currencies are those that make up over 85% of the market. The minor currencies make up the other 15% so they are obviously not as profitable.

Is there a way to simplify this?

Like I said before, you don’t have to be intimidated or anything. There is a way to simply how the forex trading market works. Picture that all currencies, the major and the minors, all revolving around one central sun. Well that sun would be the US dollar. Every transaction is made with the US dollars as its nucleus.

Picture it this way; if the US dollar goes down in value then this is an indicator that someone else’s currency value has gone up, because now your US dollar would buy you less of the other currency. If the value of the US dollar goes up then your dollar would buy you more of another currency. See how that works?

Please pick a pair

I told you that the US dollar is used as the focal point to help determine the value of other major currencies. But to help you understand more I am going to tell you exactly how it works. Remember when you were a kid and you used to trade things like baseball cards? You did this because you felt you were getting a steal, you though one was more valuable to you then the other.

Currencies are traded in the same way. You have to buy them in pairs; this means that whenever you buy one currency that you have to buy it against another, like US dollar against the European euro, or the Japanese yen against the Canadian dollar. Thorough research has to be done to help you determine if this is a move that will prove profitable in the long run.

Stay with me and you’ll soon be more excited about the possibilities. Depending on what kind of person you are you’ll be able to do the proper research to determine if buying one currency pair against another is a smart move or not. Once you understand how it works you’ll see why your returns can be so much better then any other form of investment. I’ll explain more in part three to this article.

If you’re a stranger to forex trading then you probably don’t understand why you should add this to your list of investments. You probably are intimidated by the term “forex trading” because you associate anything having the word “trading” in it with people losing their shirts. Well you don’t have to be so intimidated anymore by this lucrative investment. I am going to explain it in a way a kid can understand. By the time you are done reading this article you’ll have a clear understanding as to why you should invest in forex trading.

Forex trading in a nutshell

For those of you who don’t already know; forex stands for foreign exchange, but you’re not exchanging goods, your exchanging currencies. In the international market, currencies are bought and sold. The purpose is to exchange one currency for another in the hopes that the value will rise and it’ll be worth more then what you bough it for.

The foreign exchange market began in the nineteen seventies; this is the time when free exchange rates were first brought to attention. A free Exchange rate simply means the currencies exchange rate can fluctuate as supposed to staying at a fixed exchange rate. So as you can see; even though this type of investment is still relatively young, you don’t have to worry about it going anywhere anytime soon.

The kind of returns you can expect

Forex trading unlike any other form of investment offers you the ability to receive nice dividends without the worry of being wiped out. There are only a few major currencies that are traded, and unless these countries currencies become worthless tomorrow you would have to be very reckless to lose substantial amount of money.

Here is a look at the currencies that are traded word wide; the United States dollar, the Japanese yen, the euro, the pound sterling, the Swiss franc, the Australian dollar, the Canadian dollar, Swedish krona, the Hong Kong dollar, The Norwegian krone, the New Zealand dollar, the Mexican peso, the Singapore dollar, and the South Korean Won.

These are the most popular markets primarily because they are the most populated markets. You can expect much better returns in forex trading then what you ever could by just putting your money in a regular bank. You see; forex trading used to be a game just for the big boys. Only big name banks and wealthy corporations could come to the table, but changes were made to the forex trading structure in the 1980s that allowed people to come to the table with smaller amounts and leverage large sums for a fraction of the cost.

You can earn much higher returns then what you ever could keeping your money in a bank, because you are able to open up what is called a marginal account. These marginal accounts let you control large amounts of money for a fraction of their worth, like accounts offering 100-1 leverage on money. This means you can control $100,000 with only $1,000 where in the past you would’ve had to put up all the capital.

This is just giving you a small idea of what forex trading is and what it can do for you, I will continue convincing you in the second part to this article.

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The Forex Trading System articles are strictly informational publications and do not provide personalized or individualized investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for you. The money you allocate to futures or forex trading should be money that you can afford to lose.

First off, let me state that I have a sincere desire to see people reach a level of success in their trading endeavors. For some, this will be to achieve the level of consistent trading performance that will allow them to transition into trading as a primary source of income. For some others, it will be reaching a point where their trading has the kind of returns that can provide them with additional income, while continuing to work in their current field. For still others, it will be achieving an understanding of the markets that will aid them in developing their long-term portfolio. And, for some, it will be in discovering that trading is not a suitable endeavor for them, and that to commit any significant amounts of capital or time, will only result in returns, and losses, that don’t meet their needs or expectations.

That is a simple reality. Trading is not a path that will meet everyone’s requirements for success in life. No one thing ever is. But, trading has the potential to help many people achieve their objectives if approached correctly, and with the dedication and effort needed for any significant path in life.

What is Trading?

What do I mean by trading? Well, let me first tell you what I believe that it is not:

1) It is not buying a ‘Magic System’ or ‘bot’ that will “let you make money while you sleep” or “take money out of the market at any time”. That is, at best, gambling. Or, at worst, self-delusion.

2) It is not a ‘Get rich quick’ formula. There have been people who have struck it ‘lucky’ in the markets. But, over time, most of those have given it all back, and more. As Seth Godin says, “it takes about six years of hard work to become an overnight success”. When the results of training and hard work kick in, it can produce a sudden, dramatic shift in a trader’s performance. The appearance of ‘Overnight’ success. But, that only comes after the long period of serious training.

3) It is not an ‘Easy’ way to make a living. While trading can develop into a simple and low-stress approach, it is no more ‘easy’ to arrive at that level of performance than it is to achieve proficiency in any other profitable skill or profession. Perseverance, dedication, and properly applied effort are key in any meaningful endeavor.

4) It is not an alternative to ‘working for a living’. Nope. Trading is business. It involves work. How much? That depends on the skills and abilities of the trader at that point in their path. For some, it is an 8-hour day, 5 days a week. For others, it can be 20 minutes a day. Like any business, it offers potential returns in line with the effort and effectiveness of the person managing that business. Trading doesn’t ‘give’ you anything. But, done well, it can help you to achieve many of the things that you want in life.

5) It is not an answer to the problems in your life. Ask any trader who has been in the business for any real amount of time, and they will tell you that the markets will always give you what you want. If what you have in your life is debt, overwork, unhappiness with your job, or a myriad of other issues, you will find that trading often produces those very same results in life after a time. Why? Because those issues are the ones that we bring with us to the business of trading. Trading doesn’t make them go away. If anything, it can amplify them. And, usually does. A good business doesn’t make a successful manager. But, a good manager can help to build a successful business.

6) It is not something that will reward a part-time dabbler with consistent success. Trading successfully, as a part-time business, is a very achievable goal. But, ‘part-time’ dedication to training results in ‘some-times’ performance. That doesn’t mean that you have to devote 8 hours a day to trading. But, it does mean that the more focused and consistent your efforts, the sooner you can achieve the kind of performance that will allow you to run a trading business for a second income. Be realistic. If you can only train for 2 hour a week, you are not going to be ready to trade with consistent success in 2 months. It’s possible, but I would likely fade that bet.

What I see as the basic elements of Trading as a business:

1) An understanding of yourself as a business owner. – What are your goals for the Business? – What assets do you bring to the endeavor? – What liabilities? – What is your true commitment level? What can you reasonably dedicate to the business without being detrimental to your current situation?

2) An understanding of the business – What is you business plan? 1 year, 2, 5 10? – What are your startup capital requirements? – What is your current level of expertise in this field? – What level of returns will meet your business plan?

3) An understanding of yourself as a trader – What is your current level of trading knowledge? Skill? – What is the style of trading at which you perform best? – What is the style of trading at which you perform worst? – What is the best risk model for your trading? – What is the current level of your market analysis skills? (Fundamental, Technical, Quantitative) – What are your weakest points as a Trader? Your strongest? – What are your weakest points as a market analyst? Your strongest?

4) An understanding of the tools of Trading – What order management platforms do you require? – What is your level of proficiency with those platforms? – What risk management tools do you use? – What is your level of proficiency in risk management? – What charting platforms do you require? – What is your level of proficiency with charting on those platforms? – What analysis tools do you require? (Fundamental, Technical, Quantitative) – What is your level of proficiency with those tools? – What style of trading (Trend following, Counter-trend, Scalping, Momentum, Breakout, etc.) is best suited to you? Least? – What time frames are best suited to you? Least? – What type of trade management is most comfortable for you? Least?

As you begin to build your trading business, the answers to these questions will help to shape the direction of your trading practices. It is just as deadly to your success to underestimate what you can reasonably commit to growing the business, as to overestimate the returns that your trading performance can produce in a consistent manner. Both will produce an exhaustion of capital, both financial and emotional, before reaching your goal.

Many people talk about the wonders of trading and how it can be best approached, but knowing how to establish and identify your entry signals can mean a lot to setting the right path to trading, therefore, a basic introduction to trading must be in order.

The primary goal to trading is for profit, since the penultimate goal for it is to sell for a profit. But do take note that trading is like gambling, where one cannot determine or tell what exact market forces are at play and what it can ultimately do to spell your trading choices.

Self determination is another key to your trading success. No one will tell you what to do next, you have to plan for yourself, expecially since there are no hard and fast rules for this career.